Question
Asked Sep 18, 2019
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A mutual fund has a rate of return for five years of 10%, 14%, 10%, and 22% . Calculate the geometric mean. Round to the nearest tenth of a percent.

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Expert Answer

Step 1

Geometric mean: It is the average of a set of observations and is generally used for calculating growth rates like growth rates of population, bonds etc.

The formula for calculating Geometric rate of return is shown above:

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1+)(1+1, )*..+)-1 Geometric Mean Where,n is the number of year r is the rate of return

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Step 2

The table showing rate of return for is as follows:

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Year Rate of return 1 10% 2 14% 10% 3 22% 4

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Step 3

The Geometric Mean is calc...

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|(1+5)x(1+r,)x...(1+r,)-1 Geometric Mean Geometric Mean /(1+0.1)x(1+0.14)x(1+0.1)x(1+0.22)-1 Geometric Mean = H(1.1)x(1.14)x(1.1)x (1.22) -1 Geometric Mean = (1.682868)4 -1 Geometric Mean =1.13-1 Geometric Mean =0.13

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